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Monday, September 27, 2021

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News + PoliticsHousingZoning and housing costs: The debate continues

Zoning and housing costs: The debate continues

UCLA professors respond to our piece on housing costs -- and why this discussion matters.


Editor’s note: Zelda Bronstein’s article on the academic discussions around the role of local government regulation in housing prices has stirred up a lot of discussion. I particularly reached out to the three professors she had criticized, Michael Manville, Michael Lens, and Paavo Monkkonen, and asked for their comments.

Protesters argue that some types of new housing can lead to displacement.

While all of this may seem, well, academic, it matters a lot: The debate in the world of urban planning scholars fairly quickly becomes part of the debate in public-policy circles, and public officials (like Sen. Scott Wiener of SF) are moving to restrict the ability of local government to regulate land use in the name of encouraging more housing.

Manville and his colleagues, whether they intend to or not, are providing the academic (and they would argue data-based) backing for the political argument that the state and federal government ought to intervene and force cities and counties to allow more, denser development.

I have been writing about this for years. I have yet to be convinced that the price of housing in CA is entirely or even largely determined by local zoning. I’m not against density, but I have always believed that the issue is more about speculative investment capital than about local rules and that allowing more market-rate development in some neighborhoods leads to more, not less, displacement.

More: Cities are really, really complex economic entities, and the idea that you can single out one factor (local zoning) and link it to the cost of housing defies reality.

As I said when I reached out to Manville, who is a professor at UCLA:

I would argue that the issue of local housing prices is so immensely complicated that there is no way anyone, even with a supercomputer and the best linear regressions ever written, could isolate local zoning rules as a singular factor impacting urban housing costs, even in a single city and certainly not for cities in the US in general, but that’s just me.

But I am happy to publish this response from Manville, Lens, and Monkkonen, and Bronstein’s response to them. So far, much of the news media and political discussion is taking the Manville, Lens, and Monkkonen position; I think we should have a spirited debate about the data and what it shows.

You can read the UCLA professors’ commentary here.

You can read Bronstein’s response here.

Tim Redmond
Tim Redmond has been a political and investigative reporter in San Francisco for more than 30 years. He spent much of that time as executive editor of the Bay Guardian. He is the founder of 48hills.
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  1. Yawn.
    Comments section inundated with housing secure Boomers attempting to gaslight Millennials.
    No one’s listening you you bloviating fools anymore.

  2. The case could be made that raising the process barriers to housing approvals and production could result in fewer units being built because projects might fail on the margins due to added costs. But this is the usual right wing tax whining, that government needs to trim to the bone lest the most marginal project not pencil out. There is no public interest in in producing race-to-the-bottom housing. We’d probably do best from the public interest to set the process barriers and design controls such that half of all projects did not pencil out so that the ones that did would be the best.

    And how would the economics of homeownership work if public policy was to push down price by adding supply to meet demand? Assume against evidence that densification of desirable urban cores pushes down housing price. Forget construction financing into a down market, can boosters seriously expect for families to take on debt to make their largest purchase something that will begin losing value the moment you drive if off of the lot? That’s the fast track to an underwater mortgage and debt peonage,.

  3. Housing is at once a need, a commodity, and an investment vehicle. To posit that supply and demand – a simplistic view of capitalism, not an economic theory – applies to a such a complex issue is ridiculous.

    Such analysis is based on the idea that there is, at the base of all economies, a free market that must be uncovered or rebooted or restored. There has never been and cannot be a free market for the simple reasons that not all regions have the same resources, and because socio-political networks require regulation, rules, and support systems. Were that not true we would not have public sanitation or safety regulations on food, buildings, and automobiles. Any such premise of basic equality is destroyed by the fact that the wealth gap in the world, in the US and especially in the San Francisco Bay Area reshapes shapes the economy to suit the rich and powerful.

    To argue about density without admitting that the extraordinary riches of 30% of the people who come to SF has no effect on housing prices is to be willfully ignorant. With 75 billionaires and fully 1/3 of those who now work in the area multi-millionaires (meaning earning an average of $2.5 million per year for more than four years in a row) density doesn’t matter because they can afford to pay whatever fines, to choose what ever size or location of home they wish. When a family looks to buy a home, they must calculate how much they can afford and hope to get a house that is within their range, so look in areas where the prices meet their financial situation. If one house on a street of houses that are worth $1m each suddenly has someone pay $1.2 million, the value of all those homes goes up, sot eh next person bids $1.3 m. With swarms of rich tech & finance workers overbidding, then tearing apart homes the average price goes up and up and up.

    This high density model pushes the very people who are trying to gain a foothold on the economic ladder right onto the dirt. For most people a home is the single largest purchase they will ever make. It is a college fund, an emergency fund, a retirement find, and a safe haven. In the choice between the capriciousness of a 401K and the solidity of real estate, even the rich choose land. The people who need homes are being shoved into high rises, with the added expense of HOA fees and other obligations, as if they were cans of food in a discount market.

    $1 million for a home is absurd every place but here, Manhattan, and Tokyo. If one were to calculate how much square footage per person the wealthy take up in their homes, how much the subsidized office space costs taxpayers versus the corporate owners, one might then have some idea of who is using space and other resources – water, garbage, power – wisely. Density isn’t just about economics, it’s also about environmental policy. Density only works until the city becomes a heat island, until it gets so dense it alters weather, bird migration, drains aquifers, and generates so much garbage that it pollutes other, poorer places. This is where San Francisco is now. No amount of rezoning can resolve that unless it starts taking down the now empty office buildings and restricting the size of mansions.

  4. The back and forth over measuring regulation is slightly not to the point. True, the earlier Wharton index measured a grab-bag of any and all regulation, which would include earthquake and fire safety and other things which are not negotiable. The Terner studiy looks at things which are more apropos to the limitations on construction in places like SF: available land, permitting delays, zoning standards, inclusionary housing, etc.

    But what all these studies do is look for correlation between those indexes and housing prices, typically across cities. The correlations which they find are typically weak, and do not in any way approve causation. Dense cities will typically have higher land prices because they are full, and because they (nowadays) attract highly-paid workers and rich businesses. At the same time, dense cities require more regulations because there is more competition for limited public resources, like transportation infrastructure, schools, and open spaces. In other words, cities are more expensive because they are cities; cities have more regulations because they are cities. They are not more expensive because they are more regulated.

    And, any of these studies which ignore the effect of rich housing seekers coming in in favor a supply-only model, are guilty of deciding the outcome first, and then looking for proof.

  5. The cost of the approvals process can’t influence the price of any given unit that goes through that process. The price of that unit is the highest that the market will bear at occupancy time. The price of existing housing in San Francisco is imperceptibly impacted by the addition of new supply.

    If the claim is that the regulatory envelope is too tight to allow developers to built to scale market solutions, then, yes, that is the point.

    This stands ignorant of the fact that San Francisco’s pipeline is bulging with tens of thousands of approved yet unbuilt projects. The free marketeer/anti-regulationists’ quarrel is not with zoning, regulation or even SFH NIMBYs. No, their quarrel is with capital not marshaling itself to advance their pet social engineering project. It is as if in their housing monomania they are secretly pining for a command economy. On housing, at least.

  6. Duh, land use controls “inhibit housing” as legal controls inhibit everyone from doing whatever they want, including building housing.

    The first question here is whether land use controls are dispositive in pushing up housing prices by inhibiting some housing and preventing the addition of supply?

    If the answer to that question is “yes,” then the next question is whether land use controls’ role in inhibiting production of supply is a significant contributor to price increases.

    Left unanswered here is whether lenders will take the risk to finance projects building into a market that threatens to see price reductions due to added supply as the market thesis holds. As it stands now, higher rise, denser buildings grow more expensive with height, and with greater expense comes greater fear of risk on the part of lenders.

    If lenders indeed balk at a non-increasing market, that might serve as a circuit breaker. But with looser controls, what kind of crap would we have to suffer in order to test their theses?

    SF economist Ted Egan made the economic argument that adding 100K units today would begin to push down price. Can anyone pencil out a program to implement that which is cognizant of business and real estate cycles as well as the absorption rate? At some point in this scenario, we might very well see the economic activity of the City crimped due to the sheer volume of materials moving through city streets.

    Were this liberalization to pass statewide, that would probably lead to an immediate spike in building costs due to competition for the relatively inelastic construction firms.

    Market solutions only work as advertised under controlled laboratory conditions.

  7. Don Grant hit one of the nails right on the head. More density means higher land value. No wonder the legislature wants to increase density in all our cities.
    The second nail is the unending increase in commercial and industrial expansion that is driving the need for more people. The solution here is to force commercial and industrial expansion to areas where there is room for residential expansion. Place in point, Antelope Valley in Los Angeles County. Oh, wait, government wants to cover the desert in solar farms.

    Also keep in mind that population growth in California has fallen to nearly zero. Why do we need more homes? Wait another year and growth will go negative.

  8. The supply of land in SF is fixed. The more units that are allowed increases the price of the land. Or the more income the land can produce, increases the price of the land. I think the Salesforce Tower land was well over $100 million per acre. The land at 16th and Mission is nearly $50 million per acre. The industrial zoned land near to downtown (proposed Amazon center) goes for over $30 million per acre.

    In SF where the supply of housing is the greatest, units per square mile, the price (per square foot) is the highest. As you move away from downtown both density and price declines. Increasing density seems to increase the price. If a single-family lot is rezoned for two units the assessed value of the land will increase, as the land can produce more rent.

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